OVERVIEW CALL CENTER BUSINESS REQUIREMENTS

RESTRICTIONS ON FOREIGN OWNERSHIP

Under the Foreign Investment Act (FIA), foreign ownership in a domestic corporation is allowed
up to the extent of 100 percent, provided that the corporation is not engaged in an area of
economic activity falling under the Foreign Investment Negative List (FINL). The FINL enumerates
specific areas of economic activity that are reserved only to Philippine nationals, as well as those
where foreign equity or participation is allowed but limited to a certain percentage. In particular,
BPO services are not included in the FINL and can thus be wholly foreign-owned, subject to
minimum capitalization requirements on domestic market enterprises.

GOVERNMENT APPROVALS AND REGISTRATION

Corporations and partnerships must be registered with the Securities and Exchange Commission
(SEC) to secure their primary license or certificate of registration.

Single proprietorships must register with the Bureau of Trade Regulation and Consumer
Protection of the Department of Trade and Industry (DTI).

If the entity is qualified to avail of incentives based on particular laws, registration with the
government agency implementing the incentive law is also required for the incentives to apply.

POST-SEC REGISTRATION REQUIREMENTS

After registration with the SEC, the corporate entity must register with the tax authority, i.e., the

a. Bureau of Internal Revenue (BIR)

b. the local government unit (LGU) of the city or municipality where it will do business
c. Social Security System (SSS),
d. Home Development Mutual Fund, Pag-IBIG (government mandated housing fund for
employees)
e. Philippine Health Insurance (government mandated health insurance for employees).

USE OF LAND

Ownership of private land is limited to Filipinos or corporations at least 60 percent of the

outstanding capital of which is owned by Filipino citizens. However, foreigners are allowed to
lease private land for a period of up to 75 years. They can also purchase up to 40 percent of the
total available condominium units and townhouses in a single proprietary block.

EXCHANGE CONTROL

The Bangko Sentral ng Pilipinas (BSP) has fully liberalized foreign exchange policies, allowing full
and immediate repatriation of capital and remittance privileges of income by foreign investors
subject, however, to certain precautionary conditions under the Anti-Money Laundering Act.
Foreign exchange may be freely sold and purchased outside the banking system. Foreign exchange
expenditures obtained from the banking system no longer require the prior approval of the BSP.
Similarly, foreign exchange may be sold by authorized agent banks without prior approval of the
BSP for payment on foreign exchange transactions, except for certain foreign currency loans still
covered by BSP regulations. Foreign exchange receipts, acquisitions, or earnings may be sold for
pesos (even to unauthorized agent banks or outside the banking system); retained; deposited in
foreign currency accounts (whether in the Philippines or abroad); or used for any other purpose.

REGISTRATION OF FOREIGN INVESTMENT WITH THE BSP

The registration of foreign investment with the BSP is not mandatory. However, if the foreign
exchange needed to fund the repatriation of capital or remittance of profits shall be sourced from
the Philippine banking system, the banks will require a BSP Certificate of Registration.
GOVERNMENT INCENTIVES

Government incentives are generally granted under the Omnibus Investment Code of 1987, which
integrates the countrys basic laws on investments and is administered by the Board of
Investments (BOI). Fiscal and non-fiscal incentives are granted to enterprises located in areas that
are given high priority by the government, such as export-oriented ventures, projects locating in
less-developed areas, and enterprises registered with the Philippine Economic Zone Authority
(PEZA).

Enterprises that are 100% foreign-owned and engaged in preferred areas of investment are
entitled to tax incentives and exemptions from the Board of Investments (BOI) and the Philippine
Economic Zone Authority (PEZA). Businesses may only avail of one set of incentives at a time
and will be required to comply with investment commitments and inspection by the relevant
government agency. Under PEZA, the set of incentives actually received by a registered enterprise
will depend on the registration agreement actually signed between the enterprise/locator and
the PEZA.

Foreign ownership is restricted for enterprises that undertake activities listed in the Foreign
Investment Negative List (FINL) of the Philippines.

Incentives generally given include:

a. fiscal incentives (e.g., income tax holiday, 5 percent tax on gross income in lieu of all
taxes, additional deduction of labor expenses from taxable income subject to certain
conditions, and various tax exemptions and tax credits);
b. non-fiscal incentives (e.g., simplification of customs procedures for imports and exports);
c. incentives specific to regional or area headquarters.
d. Additional incentives are available to enterprises engaged in selected economic activities
as specified by special laws.
REGISTRATION WITH THE SECURITIES AND EXCHANGE COMMISSION (SEC)

Business entities available to BPOs

BPOs in the Philippines may take the form of either a subsidiary or a branch. In the case of a branch office,
it can be set up either as a regular branch or a regional operating headquarters (ROHQ).

1. Legal attributes

A. SUBSIDIARY

A subsidiary is a stock corporation organized under Philippine laws and as such, is deemed a
domestic corporation even if its capital stock is foreign-owned. It has a legal and juridical
personality separate and distinct from its parent company. The liability or exposure of the parent
company is limited to its investment in, or subscription to, the capital stock of the subsidiary. The
properties and assets of the parent company are not directly exposed to potential liabilities of the
subsidiary.

B. BRANCH

Corporations organized and registered under the laws of any foreign country may establish a
Philippine branch by securing a license to do business in the Philippines. A branch is merely an
extension of the legal and juridical personality of the foreign head-office. It does not exist
independently of the head office and as such, the assets and properties of the foreign head office
may be exposed to the liabilities of the branch.

C. ROHQ

An ROHQ is a branch of a foreign entity but it is limited to performing the following qualifying
services to its affiliates, subsidiaries, or branches in the Philippines, in the Asia Pacific region, and
in other foreign markets:

General administration and planning

Business planning and coordination
Sourcing/procurement of raw materials and components
Corporate finance advisory services
Marketing control and sales promotion
Training and personnel management
Logistics services
Research and development services, and product development
Technical support and maintenance
Data processing and communication
Business development

An ROHQ cannot offer qualifying services to entities other than its affiliates, branches or
subsidiaries. It cannot engage, directly or indirectly, in solicitation or marketing of goods and
services, whether on behalf of its mother company, branches, affiliates, subsidiaries or any other
company.

2. Registration requirements, minimum capitalization and fees

A. SUBSIDIARY

Registration requirements

To register a subsidiary, the incorporators, who must number at least five but not more than 15
individuals, must file with the SEC the proposed Articles of Incorporation specifying the company name
and purpose, principal office, capital ownership, and other information together with By-Laws and the
following documentary requirements:

i. SEC Name Verification Slip

 ii. Treasurers Affidavit
iii. Affidavit of incorporator or director undertaking to change corporate name
iv. For corporations with foreign equity: Proof of remittance by non-resident aliens and foreign
corporate subscribers
v. For corporations with more than 40 percent foreign equity: SEC Form No. F-100
vi. Certificate of Authority or endorsements from government agencies, if applicable
vii. For call centers: Business plan/modus operandi and list of prospective clients
viii. Additional requirements based on the kind of payment of subscription

Minimum paid-in capital requirement

The law does not impose a minimum authorized capital stock, but it requires that at least 25
percent of the authorized capital stock be subscribed at the time of incorporation, and that at
least 25 percent of the total subscribed capital must be paid-up. In all instances, however, the
minimum paid-up capital for a corporation should be at least P5,000. If the subscriber is an alien
or a non-resident foreign corporation, the amount subscribed must be fully paid up.

If foreign equity in a domestic market enterprise (DME) exceeds 40 percent, it is required to

have a minimum paid-up capital equivalent to US$200,000. A DME is one that produces goods
for sale, or renders services to the domestic market entirely, or if exporting a portion of its output,
fails to consistently export at least 60 percent thereof. The required minimum capitalization may
be reduced to US$100,000 if the company will undertake activities involving advanced technology
as determined by the Department of Science and Technology or if it will employ at least 50 direct
employees. If, however, the entity exports at least 60 percent of its services, the required
minimum capital will not apply.

SEC filing fees

The filing fee for a subsidiary is computed at 1/5 of 1 percent of the entitys authorized capital
stock plus 1 percent of said computed fee as SEC legal research fee.

Documentary Stamp Tax (DST)

Upon incorporation of the subsidiary, DST at the rate of .5 percent of the shares subscribed shall
be paid within five days after the close of the month when the corporation was incorporated.

B. BRANCH

Registration requirements

To set-up a Philippine branch, there is a need to file an application for License to Do Business with the SEC
together with the following documentary requirements:

i. SEC Name Verification Slip

ii. Certified copy of Board resolution authorizing the establishment of a branch office in the
Philippines and designating the resident agent to whom summons and other legal processes
may be served on behalf of the foreign corporation and stipulating that in the absence of such
agent or upon cessation of its business in the Philippines, any summon of legal processes may
be served to the SEC as if the same is made upon the corporation at its home office
iii. Financial statements for the immediately preceding year at the time of filing the application,
certified by an independent Certified Public Accountant of the home country
iv. Authenticated copies of the Articles of Incorporation/By-laws/Partnership with an English
translation thereof if in a foreign language
v. Proof of inward remittance such as bank certificate of inward remittance or credit advice of
the assigned
i. capital of the branch
vi. Resident agents acceptance of appointment
 All documents executed and signed abroad must be notarized and duly authenticated by the
Philippine Embassy or Consular Office in the home country of the foreign corporations head
office.

Minimum capital requirement

Since a branch is an extension of a foreign entity, it is required to have an assigned capital

equivalent to US$200,000. However, this can be reduced subject to the same conditions
applicable to a subsidiary.

SEC filing fees

The SEC filing fee for a branch is equivalent to 1 percent of the assigned capital plus 1 percent of
said computed fee as SEC legal research fee.

Branch securities deposit

Within 60 days after issuance of its SEC license, a branch is required to deposit with the SEC
securities worth at least PhP100,000 in the form of government bonds or securities, shares of
stock in registered enterprises, shares of stock in domestic corporations registered in a stock
exchange, or shares of stock in domestic insurance companies and banks, or any combination of
these securities. In addition, within six (6) months after each fiscal year, the SEC shall require the
branch licensee to deposit additional securities equivalent in actual market value to two percent
(2%) of the amount by which the licensees gross income for that fiscal year exceeds Pesos: Five
Million (PhP5,000,000). The SEC shall also require deposit of additional securities if the actual
market value of the securities on deposit has decreased by at least 10 percent of their actual
market value at the time they were deposited.

C. ROHQ

Registration requirement

To register an ROHQ, an application shall be filed with the BOI together with the following supporting
documents:

i. Corporate Name Verification Slip

ii. Bank certificate of inward remittance of the initial investment in the ROHQ
iii. Duly accomplished application form
iv. Certification that it is engaged in international trade with affiliates, subsidiaries, or branch
offices in the Asia Pacific region or other areas
v. Board resolution from principal office of foreign entity that it is authorized to establish an
ROHQ in the Philippines

Required investment

An ROHQ is required to have an initial investment equivalent to US$200,000.

BOI filing fee

The fee is PhP4,500 plus 1 percent of this amount as legal research fee.

POST-SEC REGISTRATION REQUIREMENTS

Registration with the BIR

On or before the commencement of business, the BPO company must register with the BIR
Revenue District Office that has jurisdiction over its place of business. The registration shall
include the taxpayers name, business style, place of business and such other information as may
be required.
 An annual registration fee of PhP500 for every separate or distinct establishment or place of
business shall be paid upon registration and every year thereafter on or before the last day of
January.

LGU, Social Security System (SSS), and others

a. Local government unit

b. SSS,

c. PhilHealth

d. Pag-ibig

National taxes

Income tax

Subsidiary.

Being a domestic corporation, a subsidiary is subject to income tax on its worldwide income, i.e.,
income from all sources within and without the Philippines.

Branch.

For tax purposes, a Philippine branch of a foreign corporation is treated as a resident foreign
corporation, and as such, is subject to income tax only on its Philippine-sourced income, i.e.,
income derived from all sources within the Philippines. A branch is not subject to tax on its foreign-
sourced income.

Except for the above rules, a BPO entity that is set up either as a subsidiary or branch is generally
subject to the same tax rules. However, there are certain tax incentives available to qualified BPOs as
discussed below.

a. Regular corporate income tax (RCIT)

b. Minimum corporate income tax (MCIT)

c. Net operating loss carry-over (NOLCO)

d. Other income subject to special tax rates

The regular income tax shall not apply on certain types of passive income that are subject to final
tax.

Examples of passive income subject to final tax are:

Nature of income payment Tax rate

Interest on foreign loans payable to non-resident foreign corporations (NRFCs) 20%
Interest and other income payments on foreign currency transactions/loans 10%
payable to OBUs/FCDUs
Sale of shares of stock not traded in the stock exchange on net capital gain 5%/10%
1st P100,000/amount in excess of P100,000
Capital gains from sale or exchange of land and/or buildings classified as capital 6%
asset based on selling price or fair market value whichever is higher
All kinds of royalty payments to citizens, resident aliens and NRAETB (other 20%
than WI 380 and WI 341), domestic and resident foreign corporations
Branch profit remittances by all corporations except PEZA/SBMA/CDA- 15%
registered
On other payments to NRFCs 30%
Interest on bank deposits and substitutes and trust fund to NRFCs 30%
Interest income from expanded foreign currency deposit of NRFCs exempt
 Withholding tax on income payments

Dividends tax

Branch profit remittance tax

Value-added tax (VAT)

Documentary stamp tax (DST)

Taxes on importation

Local taxes

Local business tax (LBT)

Real property tax (RPT)

INCENTIVES AVAILABLE TO BPOs

At present, the various investment laws that grant fiscal and nonfiscal incentives to call centres and
business process outsourcing activities are:

Executive Order No. 226, as amended [also known as the Omnibus Investments Code (OIC) of
the Philippines]. This is being implemented by the BOI.
Republic Act No. 7916, as amended (also known as Special Economic Zone Act or the PEZA
Law). The implementing agency is PEZA.;
Other laws such as Republic Act No. 7227 (Bases Conversion and Development Act of 1992),
as amended by Republic Act No. 9400, Republic Act No. 7903 (Zamboanga City Special
Economic Zone Act of 1995) and Republic Act No. 7922 (Cagayan Special Economic Zone Act
of 1995).

BOI INCENTIVES

Registration requirements

To qualify for BOI registration, the specific activity of the registrant must be included in the Investment
Priorities Plan (IPP)1, an annual issuance by the Philippine government that identifies priority investment
areas or business activities that may be registered for incentives.

BPO is included in the IPP. Based on the specific guidelines implementing said IPP, BPO covers voice and
non-voice IT-enabled services including procurement and sourcing services, contact centre,
business/knowledge processing, software development, animation, data transcription, engineering
design, game development, and information and communication technologies (ICT) support services. In
particular, contact centre projects must have a minimum investment cost of US$2,500 per seat to qualify
for BOI incentives. This amount covers the cost of equipment (hardware and software), office furniture
and fixture, building improvements and renovation, and fixed assets except land, building and working
capital.

1
2017 IPP includes:
b. Creative Industries/Knowledge-Based Services
This covers IT-BPM for the domestic market (e.g., contact centers, data analytics), and those that involve
original content such as animation, software development, game development, health information
management systems, and engineering designs.
Projects that cost at least USD5 million (excluding cost of land and building) to be put up in the first year
of operation may be granted pioneer status.

Generally, the minimum equity required to finance the project applied for registration shall be equal to
25 percent of project cost.

Incentives granted to BOI-registered companies

a. Income tax holiday (ITH)

for a period of six years for pioneer projects and four (4) years for non-pioneer projects, reckoned
from the start of commercial operations. For newly registered pioneer and non-pioneer
enterprises, the ITH may be extended for an extra year under certain conditions, but in no case to
exceed eight years.

After the ITH period, the BPO company shall be covered by the regular corporate income tax
discussed above.

b. Value-added tax

Export of services by a BOI-registered BPO shall be zero-rated for VAT. Export sales pertain to
services rendered by the BPO to foreign clients that are not doing business in the Philippines and
are paid for in inwardly remitted foreign currency. The sale of service to local customers shall be
subject to 12 percent VAT.

Purchases by a BOI-registered BPO enterprises from VAT registered suppliers or contractors shall
be effectively zero rated without need of prior BIR approval. [BIR Ruling DA 452-07; BIR Ruling DA
193-06; BIR Ruling DA-(VAT-016) 068-09]

c. Zero duty on importations of machinery and equipment

Any importation of capital equipment, spare parts and accessories by enterprises registered with
the BOI, whether export or domestic-oriented, shall be subject to 0 percent duty under certain
conditions.

d. Additional deduction for labor expense

For the first five years from registration, a registered enterprise shall be allowed an additional
deduction from taxable income equivalent to 50 percent of the wages of additional skilled and
unskilled workers in the direct labor force, subject to fulfillment of a prescribed capital-to labor
ratio. The allowable deduction is based on the increment in the number of direct labor in the year
of availment against the previous year. This incentive shall not be availed of simultaneously with
the ITH.

e. LBT exemption

A BPO company registered with the BOI as pioneer or non-pioneer shall be exempt from LBTs for
a period of six and four years respectively, from the date of registration. The exemption extends
only to LBT and not to other taxes such as real property tax as well as other fees and charges
imposed by the local government unit (LGU).

f. Employment of foreign nationals in supervisory, technical, or advisory positions for a period of five years
from date of registration.

This limitation does not apply to the positions of president, general manager and treasurer of
enterprises that are majority-owned by foreign investors.

Spouses and unmarried children below 21 years old are permitted to enter and reside in the
Philippines during the employment period.

g. Simplification of customs procedures

h. Unrestricted use of consigned equipment under re-export bond

i. Exemption from wharfage dues and any export tax, impost and fees on its non-traditional exports for
ten years from the date of registration

PEZA INCENTIVES

Registration requirements

For an entity to qualify for PEZA registration, it must be (1) located in a building or zone declared as a PEZA
zone and (2) engaged in an activity qualified for registration.

Under the PEZA Guidelines on Registration of IT Enterprises and Establishment and Operation of IT
Parks/Buildings, IT service activities that may be registered with PEZA for enjoyment of incentives include:

Software development and application, including programming and adaptation of system

software and middleware, for business, media, e-commerce, education, entertainment, etc.
IT-enabled services, encompassing call centers, data encoding, transcribing and processing;
directories; etc.;
Content development for multi-media or internet purposes
Knowledge-based and computer-enabled support services, including engineering and
architectural design services, consultancies, etc.
Business process outsourcing using e-commerce
IT research and development
Other IT related service activities as may be identified and approved by the PEZA Board

INCENTIVES GRANTED TO PEZA-REGISTERED COMPANIES

a. Corporate income tax incentives

A newly registered entity is generally entitled to an ITH for four years for non-pioneer enterprises,
or six years for pioneer enterprises. After the lapse of the ITH period, the PEZA-registered
enterprise shall be subject to the special 5 percent tax on gross income earned, in lieu of all
national and local taxes, except real property taxes on land owned by developers. The 5 percent
special tax rate is not timebound, and shall be available to the enterprise for the duration of its
PEZA registration. The 2 percent MCIT does not apply to PEZA-registered firms.

b. VAT

Export sales of services of a PEZA-registered BPO company during the ITH period shall be zero-
rated for VAT. Upon the lapse of the ITH, whereby the BPO company becomes subject to the 5
percent special tax, the export sale shall be exempt from VAT. Domestic sales shall be subject to
12 percent VAT.

Purchases by a PEZA-registered BPO company from a VAT-registered supplier outside the ecozone
shall be subject to 0 percent VAT whether or not the company is under the ITH or 5 percent special
tax.

c. Tax and duty free importation of capital equipment

Generally, PEZA-registered enterprises are exempt from payment of import duties and taxes on
imported machinery, equipment and spare parts, subject to certain conditions. Importations of
PEZA-registered enterprises are not subject to 12 percent VAT.

d. Tax and duty free importation of construction materials

e. Tax and duty free importation of specialized office equipment and furniture.

f. Additional deduction for training expense

One-half of the value of training expenses incurred in developing skilled or unskilled labor or for
managerial or other management development programs may be deducted, to be charged
 against the 3 percent share of the national government in the special 5 percent tax on gross
income.

g. Local business tax

A PEZA-registered enterprise availing of the ITH incentive will be exempt from all local taxes,
except real estate taxes. A PEZA-registered enterprise under the 5 percent preferential rate will
be exempt from all local taxes, except real property tax on land owned by ecozone developers.

h. Unrestricted use of consigned equipment

i. Other non-tax incentives

Foreign investors with initial investments of US$ 150,000 or more in registered IT enterprises shall
be granted permanent resident status. IT enterprises shall also be allowed to employ non-resident
aliens required in its operations.

j. Exemption from branch profit remittance tax

Branches registered with the PEZA are exempt from the 15 percent branch profit remittance tax.

REQUIREMENTS FOR PEZA BOARD APPROVAL AND REGISTRATION OF IT ENTERPRISES

IT Enterprises may apply for PEZA registration for availment of incentives by submitting the following
requirements:

Application Form (notarized)

Corporate Profile (including that of parent company, if applicable) which should include:
o Brief company history
o Existing or proposed business activities and projects
o List of affiliated companies registered with PEZA
o List of affiliated companies registered with the Board of Investments (BOI) and copies of
the
o Certificates of Registration with Terms and Conditions and annual reports submitted, if
applicable
o Principal officers and biodata
o Audited Financial Statements (for the last 3 years for existing companies)
Certificate of Registration with SEC and updated Articles of Incorporation
Board Resolution authorizing the filing of application with PEZA and designating the
representative(s) authorized to transact registration with PEZA
Project Brief (i.e., Information on Market, Technical, Financial and Management aspects of the
project to be registered)
Project feasibility study includes reference documents and other information used for the
study
Anti-graft certificate

Taxation of ROHQ

Tax attributes and incentives granted to an ROHQ are:

Corporate income tax

Income generated by an ROHQ from performing the qualifying services shall be subject to the
preferential rate of 10 percent on net taxable income.

Branch profit remittance tax

Income derived from Philippine sources by the ROHQ, when remitted to the head office or parent
company, shall be subject to branch profit remittance tax at the rate of 15 percent.
VAT

An ROHQ is subject to the 12 percent VAT on gross receipts derived from the domestic sale or
exchange of services. Export services performed by an ROHQ for its affiliates shall be zero-rated
for VAT.

Withholding tax on compensation of alien and Filipino executives

Alien executives or expatriates employed by an ROHQ and occupying managerial and highly
technical positions shall be subject to a final tax of 15 percent of their gross income.

The same tax treatment shall apply to Filipinos occupying the same positions as defined above,
whether or not there is an alien executive occupying the same position subject to certain
conditions. Qualified Filipino employees shall likewise have the option to be taxed at either 15
percent of gross income or at the regular graduated tax rates of 5 percent to 32 percent on their
taxable income.

Local taxes, fees or charges

An ROHQ is also exempt from all kinds of local taxes, fees or charges imposed by the local
government unit, except real property tax on land improvements and equipment.

Other tax and non-tax incentives

An ROHQ shall enjoy tax and duty free importation of equipment and materials for training and
conferences subject to certain conditions.

Foreign personnel employed by an ROHQ and their respective spouses and unmarried children
below 21 years of age shall be issued multiple entry visas, valid for a period of three years, and
extendible for another three years.

Alien executives of an ROHQ are entitled to tax and duty free importation of personal and
household effects under certain conditions.

Personnel of an ROHQ and their dependents are also exempt from travel tax, upon
recommendation of the BOI.